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Cryptocurrency was supposed to democratise finance. Wall Street, though, always finds a way to win.
The debtor in the bankruptcy of FTX this week said account holders would get at least 118 cents on the dollar for the value of their claims from the crypto exchange’s November 2022 collapse. It is, all things considered, a good outcome. It is also one that vulture funds saw coming.
Firms such as Attestor, Farallon, Oaktree and Silver Point, among others, have been purchasing secondary claims for months on exchanges that specialise in the racy world of bankruptcy interests. In the chaotic weeks after the FTX bankruptcy filing, those claims were changing hands for well under 20 cents on the dollar.
The task of the case was to find, collect and sell every FTX asset under the sun for cash. And those assets were pulled in just as crypto prices were surging, along with the value of the company’s venture capital portfolio.
In the weeks leading up to the unveiling of the reorganisation plan, claims were changing hands at levels approaching 100 cents. It was obvious merely by following the case docket that plenty of money was flowing into FTX’s coffers.
Still, assembling a plan remained an administrative nightmare. Government agencies such as the Department of Justice, Internal Revenue Service and Commodity Futures Trading Commission each had their own claims to assert against FTX. The debtor was able to convince Uncle Sam to let account holders get the first dibs on proceeds.
Bankruptcy wonks have been impressed how quickly John Ray, the emergency FTX chief executive and his advisers, have filed their plan of reorganisation. Similarly messy liquidations such as Enron and Lehman Brothers took much longer.
Account holders themselves have mixed feelings about their win. The 118 cent recovery is based on crypto prices at the nadir of the 2022 crypto winter. They will not have fully benefited from the huge rally in coin prices since.
Depositors of financial institutions have the right to ask for their money back on demand. Impatience can be an expensive luxury.
Patience, on the other side, can prove a lucrative virtue. The total par value of FTX claims is $12bn. With total recoveries to reach $15bn, the total trough-to-peak gains will be more than $13bn.
The funds that were willing to buy available claims for 30, 40, 50 or 60 cents on the dollar and wait for the bankruptcy process to play out have earned — through either luck or skill — their huge windfalls.
sujeet.indap@ft.com
